3 Paths to Digitalization - A Case Study of the Energy Industry

The energy industry is undergoing an epic transformation from centralized conventional sources of power generation to more distributed and renewable sources. Some companies are starting to recognize that their existing legacy technology infrastructure – while adequate to support gigawatt-scale projects – is not agile enough to support a higher volume of distributed megawatt-scale projects. Leading energy companies, such as Enel (NYSE: ENIA), have identified “digitalization” as a key pillar in their strategies to compete in a higher volume and higher velocity distributed energy world.

Three paths towards enterprise-scale digitalization can be observed in the energy industry. The factors that determine a company’s path include their strategic approach and vision, degree of commitment to legacy system investments, and organizational will and inertia. Each path also leads to differing consequences for future competitiveness.

For the purposes of this industry case study, digitalization is defined as a desired end-state in which all repeatable business processes are automated, connected end-to-end, and leverage a shared data platform (e.g. a physical or virtual cloud data/document repository).

The central benefit of digitalization is the ability to execute at maximum organizational speed. Business processes and workflow tasks are executed faster and decisions are made quicker, more collaboratively, and with newfound confidence. Thus, the entire organization is hyper responsive to employees, partners, and customers. Of course, this new level of operational efficiency directly translates into a lower-cost structure and higher earnings that can be invested back into the growth engine of the company.

Digitalization of knowledge work has been evolving for decades and its history can be broken down into three major waves of innovation. PCs drove a leap in personal productivity. However, its utility as a platform to drive competitive advantage is limited without business process integration. This brought rise to departmental automation starting with client-server computing which has, in turn, given way to web-based applications. This is where most companies across industries are today; they have done a good job automating or digitalizing most processes at the departmental level.

Many companies fall into a similar trap: assuming that since most processes within and across all departments are digitalized, their company is mostlydigitalized. However, until processes are connected across the enterprise leveraging a common application and (“single version of truth”) data platform, they have a long way to go before achieving true enterprise digitalization.

Path 1: The Jumpers

At this point, there is a fork in the road of digitalization. Some companies make the proactive, albeit difficult, choice to jump on to the enterprise digitalization curve. They have the necessary alchemy of vision, organizational will, top-down mandate, and/or a charismatic champion to drive the department heads to collaborate on digitally connecting their inter-departmental processes and providing access to their data. This requires a leap of faith and an unselfish commitment to the greater good of the enterprise because their existing performance metrics do not incentivize this behavior. These companies are rewarded with an ability-to-execute advantage and organizational speed that creates a significant competitive advantage.

Path 2: The Sliders

Some companies understand the opportunity that enterprise digitalization affords and the risks that staying on their current path portends. However, they lack the organizational will to commit to such a strategy. The inertia of legacy processes and systems investment keeps them sliding down the departmental automation curve. Paradoxically, as they continue to invest in digitalizing intra-department processes, competitiveness deteriorates overall. This results from the proliferation of heterogeneous tools and the emergence of new islands of automation operating in disconnected mode.

Inevitably, the competitiveness gap for the Sliders widens relative to the Jumpers who bit the bullet earlier. The Sliders are forced to leap to the enterprise digitalization curve. However, at this point they are even more entrenched in departmental processes and tools. As a result, the change management process is that much more difficult. And, the Sliders are farther behind industry leaders in creating and nurturing a digital culture – a critical success factor for sustained competitive advantage.

Path 3: The Riders

As the energy industry transforms, new players are born or re-born quickly. Many of these power producers have no significant legacy systems or ingrained processes. Even some large and mature power producers never invested heavily in departmental digitalization and largely stuck to manual processes. Their business-critical data lives on myriad laptops and the workflow system of record is email. With nothing to hold them back, these companies are a threat to the establishment. They are riding the enterprise digitalization curve from an earlier starting position. And, by taking the express lane to business transformation, the ride is faster and a lot less bumpy.

What’s next

Of course, the story for the energy industry won’t end with enterprise digitalization. Eventually, this curve too shall flatten and start the slow process of decline. The next step for the energy industry is ecosystem digitalization. This is the process of connecting processes and transacting across enterprises and sharing data using new standards and technologies, such as blockchain.

The companies that reach this new frontier first will certainly be those that are today’s leaders in enterprise digitalization. The lesson in all of this is that change is difficult and painful, but if the need to transform is inevitable, then the work is more painful the longer we wait.